Huge investments to boost natural gas supply and add needed pipeline and storage facilities are coming in North America through 2015. This is particularly true as gas production in the Gulf of Mexico goes into permanent decline later this decade, and imports of liquefied natural gas (LNG) increase. "It's very clear that important decisions on investments in infrastructure are about to be made," Ed Kelly, vice president and head of North American gas and power for Wood Mackenzie in the research and consulting firm's Houston office, said in a recent presentation. "Our phones have been ringing off the hook. People want to know about the timing of new supply, demand, pricing, the role of LNG and so on. It's clear they are getting down to brass tacks. "Inexorably as gas demand increases and supplies are flattish, there is pressure. It's difficult to see LNG filling that gap. We're going to need LNG and gas from Alaska." In addition, many investment plans are in the early stages for adding new power generation post-2010. "The nation has not resolved yet the debate on how our energy is to be supplied, or how to build new coal plants after 2010, when more regions will need these plants," he said. In the near term, 2005 gas markets will be adequately supplied. "Gas supplies have stopped falling-for now. We expect to see a slight supply build. But in 2006 and 2007, the supply will be very tight. We need more drilling in the U.S., but we are bumping up against rig and crew capacity." Longer term, the consulting and research firm expects a significant gas supply response in North America, but the timing is 2008 and beyond. That will be mostly due to the arrival of more LNG supply. A potential paradox could occur, he added: Gas prices are tied to oil prices, so if oil prices fall, gas prices could as well, even though the gas supply-demand equation is tight. He expects the interplay between politics and regulatory matters to increase and require greater skill on the part of industry players. Kelly does not see a need for more long-haul pipelines to be built, but there is a need for more pipelines along the coasts to handle incoming LNG. Utilities may make more acquisitions of gas reserves for supply, but beyond 2010, the debate between coal and natural gas will intensify, according to Wood Mac's Joe Sannicandro, head of North American power research. "As we move into the next wave of planning, you don't get simple answers," Sannicandro said. U.S. power oversupply will begin to wane after 2010, but the time to plan is now. Capital costs still favor gas supply over coal-fired plants, but projected 20-year operating costs favor coal as a cheaper option. Although coal prices have soared in the past year, on a Btu basis they are still lower than gas. "There is no clear-cut winner. Both coal and gas have a lot of negatives, but we think post-2010, coal will capture nearly 30% of the incremental market build from 2010 to 2020." When asked about the possibility of new nuclear plants as an alternative, Sannicandro said, "Fat chance."

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